Can you believe that we’re less than 9 days from Thanksgiving?
I don’t know where 2020 has gone either.
Don’t worry though, I won’t bore you with my best recipe for green bean casserole or explain why tinned cranberry sauce is better than homemade.(1)
Instead I thought we’d talk about a far more international holiday – Black Friday.
Traditionally the day that retailers became profitable for the year.
Hence the (into the) Black part of the name.
If you’re like me you’ve already started getting ads from your favourite retailers.
Or at least that store you bought something from 3 years ago and whose emails don’t have an unsubscribe button.
Seems to start earlier and earlier every year.
A bit like Christmas carols in that respect.
I digress.
My favourite parts of Black Friday are the flash sales.
The pop-up telling you that a retailer has a limited number of an item, heavily discounted, first come, first serve.
Before ecommerce really took off you used to see Walmart do this in its stores by selling a very limited number of super cheap flat screen TVs.(2)
You purchase knowing that if you don’t and they run out that you could end up buying the same item in a month for a considerable bit more.
Retailers do this with a select number of items to build loyalty.
They’re hoping that you remember when you next go shopping that they gave you an amazing deal.
I sometimes wonder why law firms don’t have flash sales.
Law firms have largely fixed costs and are in the business of selling their lawyers’ time.
Any amount of time that they can sell over and above their current capacity is accretive to partnership profits.
If a firm is at 50% capacity then whether a partner bills 750 dollars an hour or 50, both are better than billing 0.
So why don’t law firms lower their prices when they have excess capacity to win more business?
For reference (and of course it varies by practice area, macroeconomic conditions, etc.) most law firms run between 60 and 80% of capacity.
That’s 20-40% of capacity that firms are leaving on the table.
I asked one of the smarter law firm operators out there and his answer was both honest and disappointing.
They explained that if they discounted rates to sell their excess hours, clients would demand those same rates, even if the firm’s excess capacity had declined or the practice area picked up significantly.
So I asked the next logical question – if that’s the case why not provide a fixed fee (which would become more competitive when excess capacity allows it)?
What a great reason to move to value based pricing!
Under a fixed fee you don’t have to worry about headline ‘rates’.
The problem is that many clients require a time narrative, irrespective of it being a fixed fee, thus allowing them to work backwards to see what the actual realized rates are.
Sometimes a little less transparency is better.
Mark it down, I don’t think I’ll ever write that sentence again.
Capacity based pricing can be good for both clients and firms if firms can flex on price and clients don’t require them to compromise their earning power going forward.
After all, if clients get the outcome they wanted, at the fair price they agreed, they should be comfortable allowing the firm to take care of its own margin.
As an added bonus the client will hopefully walk away remembering what great value the firm delivered, building loyalty.
It requires a bit of work on both sides and a step away from discounts and the billable hour.
How about legal flash sales instead?
Bargain hunting,
Christopher Thurn
Founder – Alacrity Law
(1) Email me for details!
(2) This was the rather unpleasant result – Yikes
